Economic Geography

The Information Technology-Business Process Management (IT-BPM) sector is a major segment of India’s services. It accounts for 8% of India’s GDP, employing more than 1.2 million people and constitutes sub-sectors such as Information Technology Services, Business Process Management (BPM), Hardware and Software Products and Engineering services.
State of IT-BPM industry in India:

• Within the IT-BPM sector, IT services constitute more than 51% share, followed by Software and Engineering services and BPM industry respectively.
• India’s BPM industry, with over 17,000 firms, currently controls more than a 37 per cent share in global sourcing and is witnessing a revenue growth of 1.7 times.
• The computer software and hardware sector in India attracted cumulative foreign direct investment (FDI) inflows worth US$ 85.51 billion between April 2000-March 2022.
• India’s IT-BPM sector is expected to expand to US$350 billion by 2025 and BPM is expected to account for US$50-55 billion out of the total revenue.

Factors that are at play in determining the location of IT hubs in different Indian cities are the following:

• Development of IT parks: State governments have given a boost to the IT sector by developing major IT parks. For example, many IT parks in Bengaluru, Chennai, Mumbai and Hyderabad have helped them become the country’s major IT hubs.
• Local talent: Abundance of local talent in the city has enabled Bengaluru to become one of the most preferred destinations for IT investment.
• Government policies: Government measures to ease processes and attract tech firms to invest have given an impetus to the sector. For example, government-backed incubators, strong academic and research lab presence, initiatives like Start-Up Telangana portal, etc. have attracted many international conglomerates such as Microsoft, Google, IBM, Yahoo, Dell and Facebook to set up their Indian headquarters in Hyderabad.
• Strategic location: Cyber City, Gurugram is one of the country’s fastest-growing districts and has emerged as a preferred destination for IT companies due to its strategic location and proximity to the capital.
  • Similarly, the strategic location of Kochi and its proximity to the administrative department of the Ernakulam district has made it one of the leading IT centres of India.
• Development of infrastructure: Adequate infrastructural support coupled with hundreds of colleges, polytechnics and ITls in Chandigarh city has made the city one of the largest technological hubs of Northern India.
  • Similarly, Thiruvananthapuram has world-class IT infrastructure facilities, which makes it a much sought-after IT destination in Kerala. Also, the state offers great opportunities for the IT industry due to factors such as geographical accessibility, an extensive telecom network that reaches most towns and villages, high literacy and export-based trade and commerce.

Apart from the above factors, other elements such as ‘work from anywhere’, relocation of talent to their hometowns, are critical in the evolution of Tier-II and III cities as supplementary ecosystems to the already established IT-BPM locations. Ahmedabad, Surat, Vadodara and Nagpur draw strength from mature IT-BPM destinations like Mumbai, Navi-Mumbai, Thane and Pune. Also, most Southern cities benefit from the presence of IT industries in Bengaluru, Hyderabad and Chennai.

The chip-making industry is a highly concentrated one, with the big players being Taiwan, South Korea, the US, among others. The global chip shortage, US-China tensions over Taiwan, and the supply chain blockages owing to the Russia-Ukraine conflict have led major economies to enter the chip-making sector with a renewed push.
Considering the fast-developing electronics manufacturing and innovation ecosystem going forward, India is in a good position to take advantage of the current circumstances. The global market for producing semiconductors is expected to reach $1 trillion by 2030 and India has the chance to take home nearly $80 billion of the market according to the India Electronics and Semiconductor Association.
However, given its relative inexperience in the field, India still has a lot of obstacles/challenges to clear before it can play a significant role in the chip-making supply chain, such as:

• Need of massive capital investment: Semiconductor manufacturing is a very complex and technology-intensive sector involving huge capital investments, high risks and long gestation and payback periods requiring technology adaptation. For instance, just the setting up of one semiconductor fab requires an investment of anywhere between $3 to $7 billion.
• Lack of adequate fabrication capacity: Despite having formidable chip design talent, India did not aggressively build-up its chip fabrication capacity. ISRO and the DRDO have their respective fab foundries but they are primarily for their own requirements and are also not as sophisticated. As of now, India has only one old fab which is located in Mohali, Punjab.
• Resource-intensive industry: Chip-making requires gallons of ultrapure water in a single day and uninterrupted supply of power is central to the process, which could be a task for the government to provide to factories/industries. Further, a lot of land and development of a highly skilled workforce is required.
• Lack of ecology and expertise: Majority of India’s semiconductor production has been focused on the nation’s state-run defence and space industries. There is a need for government and business collaboration in order to scale up to the potential required.

Although the government has taken several steps such as production-linked incentive (PLI) scheme, design-linked initiative (DLI) scheme, establishing semiconductor plants in different states, etc., various steps can be taken to give a push to the chip design industry in India. These include:

• Creating a chip design ecosystem in the country and formulating a plan on how it can train, retain and productively utilize the Indian talent and engage engineers constructively on projects of national importance rather than allowing them to seek employment elsewhere.
• Establishing the Semiconductor Authority of India (SAI), an entity under the Ministry of Electronics and Information Technology (MeitY), to establish a world-class Integrated Chip Design Centre (ICDC).
• Identifying national projects for chip design, looking for Indian and export markets and providing funding for their implementation and delivery.
• Procuring legacy chip designs’ IPs from potential sources rather than reinventing.
• Coordinating with fabless and semiconductor companies for joint development of chips.
• Modulating the industrial, import and taxation policies to enhance chip designing and manufacturing.
• Nurturing a semiconductor laboratory with adequate funding to grow it into a large manufacturing facility, irrespective of the private companies entering the Indian semiconductor industry and staying competitive.

Due to the rising demand for digital products, semiconductor sales on a global scale reached $152.5 billion in the second quarter of 2022. Concerted efforts are required to set up India’s own ‘Silicon Valley’ as India transitions from chip-taking to chip-making.